During this COVID-19 crisis, access to capital is essential to keep small businesses in a financial position to pay employees and fully participate in a future economic upturn. On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The $2 Trillion Cares Act is an unprecedented financial response to the devastating impact COVID-19 is having on our country, its citizens, businesses, and institutions.
Passage of the Act enabled the Small Business Administration (SBA) to establish the new Paycheck Protection Program (PPP). It will provide $349 billion in emergency funds to small businesses. “Our small businesses are the economic engines of their communities, and the SBA is ready to give them the support they need to remain open and keep their workers employed. With our whole-of-government approach, led by the President, we are providing small businesses with the resources they need to get through this unprecedented time, “says Jovita Carranza, SBA Administrator.
Applying for the Paycheck Protection Program
The SBA wants to make it quick and easy for businesses to receive PPP job retention loans that will cover eight weeks of payroll and certain overhead expenses. Business owners can apply for a loan and are approved the same day. The loans are forgiven if they are used to keep employees on the payroll and to cover specific expenses.
- Apply at SBA 7(a) lenders, banks, or credit unions
- Available to businesses without collateral requirements, personal guarantees, or SBA fees (all with a guarantee from SBA)
- Payments will be deferred for six months
- Covers first eight weeks of payroll, rent, utilities, and mortgage interest
The PPP program is retroactive to February 15, 2020, to give employers the ability to rehire employees that have been laid off and pay them through June 30, 2020. Business owners with fewer than 500 employees can borrow up to $10 million. Any loan amount that is not forgiven will mature in two years at a rate of .05 percent. In all likelihood, most small businesses will need substantially less than the maximum loan amount of $10 million, and there is a high probability that most loans will be forgiven entirely.
COVID-19 Economic Injury Disaster Loan (EIDL)
In early March, President Trump declared a national emergency to mobilize the federal government and private sectors to combat the threat posed by COVID-19. He engaged thought leaders in science, medicine, business, finance, and transportation to help save lives and lessen the impact of the virus on communities. To support small businesses, the SBA partnered with Governors to offer $2 million in targeted, low-interest disaster recovery loans to businesses that are severely impacted by COVID-19. According to the SBA, “These loans can be used to cover payroll, cover inventory, pay debt or other expenses.”
The EIDL typically is only available to small businesses within counties identified as disaster areas by a Governor. Businesses should check the SBA website for details and updates.
Choosing the Best Options
Deciding what loan program is best for your business may be easier than you think. Zoup, a company that sells natural broths, has decided to apply for both SBA loans. Eric Ersher, CEO, says, “Generally the PPP will be used for short term working capital, i.e., employee wages and operating costs. The EIDL is long-term debt and will be used for store renovations and growth-oriented initiatives.”
Emergency Economic Injury Grant
Business owners can receive additional COVID-19 relief through Emergency Economic Injury Grants, which provide emergency funds up to $10,000. To obtain the grant, the business owner must apply for an Economic Injury Disaster Loan and request the advance funds. The grants do not need to be repaid and can be used for business disruptions, payroll, rent, and mortgages. Anyone who has previously applied for an EIDL is eligible to receive a grant which covers January 31, 2020, through December 31, 2020. There are several immediate benefits to the grant:
- SBA waives six months of principal and interest for current borrowers
- Option to apply for an emergency grant and a loan
- Grants typically process faster due to the high volume of loan applications
- EIDL loan can be refinanced into a PPP loan
Take Action Now
Although some details about the new SBA loans and grants are still being finalized, it is crucial to take action as soon as possible to get money to pay your employees and operate your business. Speak to your professional advisors, bankers, and accountant. Discussing loan options should be a team effort to achieve the best possible outcome. You want to have a clear understanding of SBA rulers and regulations. While you can apply for both the PPP and EIDL, they should not be used for the same purposes. During this COVID-19 crisis it’s critical to take advantage of the SBA programs and any other programs that can support your business during this crisis. For complete details about SBA loans and programs, refer to https://SBA.gov.